Friday, March 19, 2010

Central District Denies Final Approval of Honda Hybrid Class Settlement: True v. Am. Honda Motor Co.

On February 26, 2010, Central District Judge, Virginia A. Phillips, entered a detailed order denying final settlement approval in True v. Am. Honda Motor Co., 2010 U.S. Dist. LEXIS 23545 (C.D. Cal. Feb. 26, 2010). Plaintiff’s case, brought on behalf of a putative class of Honda Civic Hybrid (“HCH”) purchasers and lessees, alleged defendant engaged in false and misleading advertising “regarding the fuel economy of HCHs” between 2003 and 2008. See id., at 1-4. The proposed settlement sought to resolve such claims by offering four potential benefits, including: (1) a fuel economy DVD, (2) rebates toward the purchase of a Honda vehicle, and (3) a $100 cash award, limited to those persons who made a documented complaint regarding fuel economy. See id., at 9-12.

The Court's finding that the proposed settlement was not fair, reasonable or adequate turned on two primary issues:

First, the Court concluded that the Settlement unduly favored persons who formally complained. As reasoned by the Court, the provision limiting monetary payment to this category of persons was not based on a viable difference in the alleged injury/damage sustained, and as a result, provided unduly preferential treatment this category of individuals. See True, 2010 U.S. Dist. LEXIS 23545, at 27-34 (“the settlement here draws an arbitrary distinction among class members with identical legal claims and injuries, and allows some to receive a cash award, and others only a DVD and limited rebate. This is patently unfair, and counsels against approval of the proposed settlement.”).

Second, the Court concluded that the primary relief offered (i.e. “the $500 or $1000 rebate given to class members who purchase another Honda or Acura”) rendered the settlement “a coupon settlement” [True, 2010 U.S. Dist. LEXIS 23545, 34-37], and that the value of the coupon benefit was insufficient in relation to the relative strength of the plaintiffs’ claims. See id., at 37-64 (“The Court has grave doubts as to the adequacy of the value of such a settlement of Plaintiffs' colorable claims, particularly in light of the three million dollar fee request. The Court thus finds the value of the settlement weighs against approval.”).

The Court’s order has some great discussion relating to the evaluation of coupon type settlements. The court was careful to note that such settlements are not improper, but face an uphill battle due to the inherent difficulty fulfilling the policy objectives underpinning use of the class action device. See id., at 36-37 (noting that “such settlements are generally disfavored.. due to three common problems…: ‘they often do not provide meaningful compensation to class members; they often fail to disgorge ill-gotten gains from the defendant; and they often require class members to do future business with the defendant in order to receive compensation.’”),

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